[technotony]

Yes, and the tax on that is a fraction of that... which is a small cost compared with cost of recruiting. remember the cash from excising the options goes back to the company so it's not really a cost (you just have to pay tax)

[JonFish85]

Does one end up paying double taxes in such a case? Because you're "getting" the money to buy the stock and then immediately buying the shares--is that first step technically income?

[russell_h]

The taxes aren't double though. A highly simplified example:

  1. Your company gives you $1400 to exercise options (I don't think Clearbit is doing this, to be clear)
  2. You pay $400 in taxes and early exercise $1000 of options in exchange for 1000 shares at $1 each
  3. Later you sell those 1000 shares for $1m total

At step 3, you will pay capital gains tax only on the $999,000 of actual gain. You don't have to pay taxes again on the original $1k.

[loumf]

It would have to be (meaning the first step is income)

[throwaway1124]

I agree. I think that in the earliest stages, startups should consider "bonus-ing" out the employees to exercise their options early. I'm wondering what the consequences/disadvantages would be for the startup.

[loumf]

It could aid recruiting if they explain the value of this benefit. In the longer term it probably reduces retention of people that had to stay to keep options from expiring.